*Complete Oil Transaction Process (Start to End)
*Complete Oil Transaction Process (Start to End)
To facilitate a large oil/gas deal between a seller and a buyer, you need to follow a structured and secure process to avoid financial, legal and operational risks. Below, the complete steps from first contact to delivery and settlement are explained:
### *Step 1: Initial Contact & LOI*
#### *1. Request for Quote (RFQ)*
• Typically, the *buyer* submits a formal Request for Quote (RFQ) with the following details:
- Type of oil/gas (e.g. Brent Crude, LNG).
- Volume required (e.g. 2 million barrels).
- Delivery terms (e.g. FOB Rotterdam, CIF Singapore).
- Contract term (one-off or long-term).
• The *seller* can also submit an *Initial Offer* with price and terms.
#### *2. Initial Letter of Intent (LOI)*
• The parties sign a non-binding LOI that includes:
- Base price, volume, and delivery period.
- General payment terms.
- KYC requirements.
### *Step 2: Due Diligence & KYC*
#### *1. KYC and Credit Check*
• The seller and buyer must exchange the following documents:
- Certificate of Incorporation.
- Financial documents (Bank Reference, Financial Statements).
- Export License, Import Permit.
- Sanctions Screening (OFAC, EU, UN).
#### *2. Non-Disclosure Agreement (NDA)*
• Before detailed negotiations, an NDA is signed to keep the information confidential.
### *Step 3: Negotiation & Term Sheet*
#### *1. Term Sheet*
• A document that specifies the technical and commercial details:
- *Price:* (e.g. based on Dated Brent + Premium).
- *Delivery:* (e.g. FOB, CIF, or Ex-Works).
- *Payment:* (e.g. LC 100% Irrevocable).
- *Inspection:* (inspection company such as SGS or Inspectorate).
#### *2. Bank Guarantees*
• The buyer may need to provide *BG* or *SBLC* to prove financial capacity.
### *Step 4: Final Agreement (SPA & Legal Compliance)*
#### *1. Sales & Purchase Agreement (SPA)*
• Includes key clauses:
- *Delivery Terms (IN COTTERS 2020).*
- *Penalty Clauses).*
- *Force Majeure (Force Major).*
- *Dispute Resolution (Arbitration: ICC/LCIA).*
#### *2. Legal Approvals*
• Compliance with OPEC, IEA, and local regulations (such as US DOE or Iranian Ministry of Oil).
### *Step 5: Payment & Financing*
#### *1. Payment Methods in Large Transactions:*
• *Documentary Credit (LC):*
- The buyer requests an LC from his bank.
- The seller's bank releases the payment after the delivery of the documents (Bill of Lading, Inspection Report).
• *Escrow Account:*
- The funds remain in Escrow until the goods are delivered.
• *Bank Guarantees (SBLC/BG).*
#### *2. Trade Finance*
• Using international banks (e.g. HSBC, Deutsche Bank) for credit lines.
### *Step 6: Inspection & Logistics*
#### *1. Pre-Shipment Inspection (PSI)*
• An independent inspection company (e.g. SGS) verifies the quality and quantity of the cargo.
#### *2. Logistics Coordination*
• *Sea Freight:* Use of reputable tankers (VLCC for high volumes).
• *Insurance:* Marine Cargo Insurance (as per Institute Cargo Clauses).
### *Step 7: Delivery & Settlement*
#### *1. Shipping Documents*
• *Bill of Lading (B/L).*
• *Certificate of Origin.*
• *Inspection Certificate.*
#### *2. Final Payment*
• The buyer’s bank releases the payment after receiving the documents.
### *Step 8: Post-Deal*
• *Resolve disputes (if any).*
• *Review performance for future transactions.*
## *Role of the broker/facilitator in this process:*
1. *Coordination between the parties* (buyer, seller, banks, inspectors).
2. *Ensure compliance with all legal procedures.*
3. *Risk management* (monetary, logistical, political).
